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Welcome to my Law blog specifically intended as an aid to law students. I will post comments and white papers, from time to time, and I am happy to carry on conversations with students who are in need of help in law school.

I am most conservative and appropriate in my approach so if you comment and/or have questions to ask, please do so with an equal degree of appropriateness.

I am a Professor of Law at Concord Law School, an Internet Law School located in Los Angeles, though I live, teach and otherwise work out of Lakewood, Colorado, resting up against the foothills just west of Denver.

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Monday, May 24, 2010

2 - Third Party Beneficiaries (Expansion)

2 - Third Party Beneficiaries (Expansion)

PLEASE NOTE THAT THE FOLLOWING IS TAKEN FROM SOME OF MY CLASS NOTES, SOME OF WHICH IS MY OWN PERSONAL WORK AND SOME OF WHICH BELONGS TO CONCORD LAW SCHOOL.IT IS POSTED TO HELP MY IL STUDENTS IN PARTICULAR.IT CANNOT BE DISSEMINATED WITHOUT EXPRESS, WRITTEN PERMISSION.

Last time in contracts, we looked at the TPB template. Now let’s explain that a bit.

We learned that there are two sets of labels in step one: (1) one is either an intended or an incidental third party beneficiary. The second set of labels (in step one) is whether one is a creditor beneficiary or a donee beneficiary. What is the difference?

If I purchase a life insurance contract naming my wife as beneficiary, she is the donee beneficiary unless by naming her as beneficiary, I was discharging some sort of a contractual obligation I owed to her. For instance, perhaps I had promised to name her as my insurance beneficiary in a prenuptial agreement? If that were the case, she would be a creditor beneficiary. What difference does that make?

Incidental beneficiaries have no rights in the third party beneficiary contract, while intended beneficiaries do. An intended creditor beneficiary can sue both promisor (insurance company, in the example above) and promisee (me) if the promise is not fulfilled. In the event my wife was a creditor beneficiary, she could sue both the insurance company and me (my estate, of course) if my estate failed to pay on insurance policy that I obtained to discharge my pre-nuptial agreement obligation. The donee beneficiary only has rights against the promisor. If my spouse was just a donee beneficiary (e.g. I have no prenuptial or other debt to my spouse), then she can only sue the promisor (insurance co) if it fails to pay her upon my death.

Now, let’s look a bit more closely to the second step – vesting.

The whole issue with vesting pertains to the situation of modification of the TPB contract by the original promisor and/or promisee. Again, this means that the promisor and promisee cannot mutually agree to modify or rescind the contract in a manner that will eliminate or diminish the 3PB’s rights. So, don’t worry about this issue if there is no attempt to modify or rescind the TPB contract. If there is an attempt to modify or rescind in a way that affects the TPB, then the rule is as stated before: Did the TPB: (1) Learn of and assent to the benefit in manner requested by the promisor and promisee or (2) Detrimentally rely on the promise, or (3) Bring suit to enforce his/her rights (prior to the modification).